Trump and Asia: What a One-China Policy Could Mean for Domestic Investment

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It’s no secret that one of the primary focal points of the new Trump administration is going to be China. His ideals regarding the One-China Policy are just one of the many controversial plans he has regarding U.S. foreign policy. His recent telephone call with the Taiwanese leader was the first contact a U.S. President or (President-Elect) has had with Taiwan since the late 1970’s and has set the stage for what many believe could be a series of progressive economic escalations.

Business negotiation or thinly-veiled threat?

One of Trump’s platforms is to renegotiate trade deals the United States has with foreign nations in order to foster better terms for the U.S. On the surface, there’s nothing wrong with wanting to get the best deal possible, but Trump’s approach is abrasive and thoughtless when it comes to the potential ramifications his trade deals could have on the global economy and trade.

By using Taiwan as leverage, Trump hopes to negotiate trade deals with China, but the plan has many pitfalls. The benefits of fighting back against devaluation stemming from China seem to be outweighed by the possible negatives that could happen in retaliation.

While the United States might have Taiwan to use as leverage against China, China has many economic tools to use against the U.S. For one, Boeing is expected to deliver $11 billion worth of planes to China to service its growing airline industry. But China could easily cancel the deal and go with its European competitor, Airbus. China could also use its anti-monopoly laws to hurt American businesses, like it did with the $975 million fine on Qualcomm, which cited licensing infringements.

But aside from its impact on domestic businesses, a more disturbing bit of leverage is the amount of American debt China holds. The country holds around $1.3 trillion in United States treasuries and could dump them on the open market. That could cause a sudden jump in interest rates and send America’s economy into a downward spiral almost overnight.

China could also devalue its currency to make Chinese products even cheaper, something that Trump claims the country already does. They could also place embargoes and higher taxes on U.S. goods, as well as pull investments out of our domestic economy.

It’s still too early to tell what impact Trump will have on the Chinese and Asian markets. Certainly, his recent actions prove that he’s going to take an active role in trying to renegotiate trade deals, but his method of doing so seems questionable.

At best, it could simply be a huge bluff intended to bring China to the table. But the dangers of using Taiwan as a political play against one of the largest economies in the world could end up hurting investors in the long run.